Research findings

Despite the wide use of various procurement reforms, global evidence on the effects of procurement reforms is remarkably scarce.

According to DFID’s 2015 evidence paper on corruption, only a small body of social science evidence on the anti-corruption effects of procurement reforms exists. However, findings ‘consistently suggest procurement reforms can be effective at reducing corruption.’

For instance, cross-country studies suggest robust procurement systems are associated with lower levels of corruption. Furthermore, anecdotal evidence indicate that public construction costs can fall dramatically when procurement systems include anti-corruption investigations.

A study on curbing corruption in aid-spending found strong and consistent support that the 2004 overhaul and reform of the World Bank’s procurement guidelines was effective in reducing corruption risks.

Some reforms can have a positive effect on overall corruption levels. A study on Asia demonstrated that open and non-discretionary auctions (where price is the only decision criterion) can reduce bribery (as opposed to secret auctions and best-value auctions). Increased oversight will reduce corruption, as shown in an analysis of Buenos Aires. A study from Italy suggests requiring more publicity in public procurement leads to more bidders and reduced costs – positive results that may stem from less corruption.

Overall, these studies suggest that monitoring, oversight and transparency can work to reduce corruption, and that they work best when combined. However, curbing one corrupt practice in the area can lead to evasive tactics with a shift to areas with weaker controls or a more aggressive exploitation of the loopholes that remain. A research report from 2018 suggested that procurement reform can be directly effective on corruption as it decreases corruption risks due to low competition. However, the study also found that evasive tactics largely cancel out these positive direct effects: buyers switch to non-treated non-competitive procedure types and exploit them more intensively. Foreign companies also lose out and their market share drops by 2 percentage points.

Large gaps in the evidence base remain. Rigorous evidence on the effect of e-procurement – a popular reform choice – seems to be non-existent. Very few cost-benefit analyses have been made, and most studies are relying on (the relatively un-reliable) perception-based data. Procurement reform choices are thus still in need of further guidance to maximise positive effects.

Reform evaluations

Donor agencies’ evaluations and assessments of their own procurement reform initiatives are much more positive about what they’ve achieved.

Since before 1990, public procurement reforms have aimed for more efficiency, accountability, and integrity in public resource management. Recently, Côte d’Ivoire, Uganda, Somalia, Malawi and Zimbabwe have benefited from World Bank and the African Development Bank’s procurement reform projects integrated in larger public sector management reforms.

Danger areas

Red flags

The Curbing Corruption in Government Contracting research programme presents a new methodology that identifies ‘red flags’ in procurement processes. Participating researchers argue that these can be used as proxy indicators of corruption risks:

• Single bidding – the tendering process is ostensibly open to all but only one company bids.
• Non-open procedures– limited or single source bidding with no international competition.
• Concentration of providers – one firm wins many contracts
• Use of consultancy contracts – these are ‘flexible,’ making it difficult to evaluate whether work was carried out.
• Bid openings advertised for a very short period – less than 14 days, making it hard for others to prepare tenders.
• Suppliers registered in tax havens.
• Cost overruns – when the final project costs is higher than the original committed amount.

Local content policies

Politicians often implement local content or nationalisation policies requiring foreign bidders to have local partners – using local sub-contractors and inputs. Rational and legal purposes such as concern for the environment, gender and inclusion issues, the economy, etc. sometimes justify such policies. However, when they merely favour politically preferred companies in government contracts – local content policies represent an element of political bias. These preferred local businesses may be controlled by politicians and bureaucrats with beneficial ownership, or politically connected business leaders. Perhaps the sole purpose of these enterprises was win government contracts for politicians and their cronies’ private gain.

In the petroleum sector, major international oil companies are “invited” to include so-called “dead meat” oil- and service companies in consortiums to satisfy local content policies. Such local shell companies hardly contribute with investments, personnel, or technology, but demand a share of the profits.

Anonymous companies

In many countries it is legal to operate with anonymous companies. However, if this conceals the owners’ political or official roles it is abuse of public power for private benefit. When regime insiders – ministers, state-owned company directors, high-ranking military officers and ruling party dignitaries – control anonymous companies and make sure they win government contracts, it constitutes political corruption.

Public-private partnerships

Public-private partnerships (PPPs) are susceptible to corrupt activity if not carefully planned and designed. PPPs are cooperative arrangements – typically long term – between two or more public and private sectors. It is a government policy tool to promote local businesses, secure financing and maintenance, and is used privatisation processes government service outsourcing. The advanced complexity of these procurement mechanisms leaves scope for corruption at each stage of the process. PPPs can hide the personal interests of certain government officials as owners of the companies involved. See: Corruption in public private partnerships.

Measuring corruption in procurement

A 2014 U4 Brief on measuring corruption in public procurement explains how researchers used big data on contracts, companies, and individuals to develop quantitative indicators for anti-corruption efforts.

Procurement reform in difficult contexts

Some suggested strategies exist on how to deal with the lack of political will to implement procurement reforms when corruption is systemic and embedded in elite circles:

Separation and specialisation

One approach is to break the links between participants in the various public procurement stages, which can happen can happen through:

1. Specialisation – establishing a professional procurement body with trained and well-paid staff.
2. Separation of duties – Responsibility for assessment, selection, supervision, and control of projects fall to separate entities.

Such procurement bodies’ level of autonomy and professionality determine how effective they are.

Ownership and political support

Another way is to build ownership and political support through inclusion mechanisms and participatory approaches when planning and designing reforms. A reform planning process needs a careful outline, including:

1. Which procurement reforms to prioritise and why.
2. What capacity gaps exist and how to address them..
3. Who will be responsible for various action.
4. What outcomes are to be achieved through planned reforms and by when.

Planning procurement reform is inevitably a political process. It requires ample time for dialogue with a range of actors: senior officials, cabinet ministers, members of parliament, NGOs, media, etc. This is necessary for building ownership and political support.

Authoritarian contexts

Autocratic rulers can engage in anti-corruption when it serves their interests – securing the regime’s survival and continuity. The way this happens is that anti-corruption efforts either give legitimacy to, or secures the ruling coalition. Therefore, it has been possible for many authoritarian governments to curb bureaucratic corruption to maintain a good reputation, and make anti-corruption reforms that benefit rulers and punishes their rivals.

Procurement reforms are, in any case, more likely to succeed when they are part of broader anti-corruption and good governance strategies. While some autocratic regimes have made substantial progress in controlling corruption, we should remember that such progress is dependent on goodwill from a few senior decision-makers. It is not the result of increased accountability – instead, authoritarian corruption control is repressive and discriminatory. Therefore, procurement reform projects require more than technical assistance and training of procurement professionals. It takes a holistic, political economy approach.

See, for example, the 2019 U4 Issue Cambodia’s anti-corruption regime 2008-2018: A critical political economy approach.